WEEKLY: ICE Cotton May Continue To Trade Sideways On Mixed Fundamentals

MUMBAI (Commoditiescontrol) – ICE cotton futures finished the truncated week (Monday, Sept 3 observed as holiday for Labor Day) on a negative note after trading in a tight range amid lots of uncertainties about demand, weakening currencies in emerging markets, U.S.-China trade war and ahead of harvest in key producing countries.

Harvest has commenced across the northern Mississippi River Delta, although showers continued to hinder progress of both harvesting and defoliation operations.

The most-active December cotton futures on ICE exchange settled this week with loss of 0.3% at 81.99 cents per pound. The contract hovered between 81.20 to 83.40 cents pound. December cotton contract over the last three weeks has traded in a very tight range of 81.13 to 84.25 cents pound.

ICE cotton earlier on Tuesday started this week with positive intent amid concerns about the potential crop damage from tropical storm Gordon, but it later weakened without making any significant impact on cotton crop.

The average daily volume in December cotton futures this week improved by nearly 6% at 62,409 lots (each 50,000lb). However, open interest edged down by 0.5% at 144,807 lots.

Daily ICE cotton volume of all contracts during the week averaged at 21,748 lots, up from 17,616 lots a week ago. Open interest totaled at 254,473 lots versus 252,959.

The higher open interest and volume with negative tone in prices is indicating bearish tone to continue ahead, however we should also look at others fundamentals as well.

Currency Impact
The currencies of emerging markets continued to soften with Indian currency falling over 10% since April followed by over 9% depreciation in Indonesia Rupiah and Chinese Yuan. Apart from these currencies, Argentine Peso and Turkish Lyra have dropped 60% and 80%, respectively.

Indian cotton scenario has remained better so far this season with less pest infestations with decent rain and timely rainfall in cotton producing belts. Outlook for Indian cotton exports have turned slightly brighter with sharp weakness; however, the higher MSP could act as hurdle. China, Tukey and Indonesia are the key importers of cotton and weakness in their currency will certainly make cotton import costlier and may hurt demand for their products.

U.S. Weekly Export Sales
U.S. weekly cotton export sales for marketing year 2018-19 (Aug-Jul) as on week ended August 30 dropped 36% week-on-week at 102,662 Running Bales (RBs), while shipment improved by 7% w/w at 187,820 RBs.

Net cancellations were on the higher side at 13,500 RBs versus 4,400 a week ago.

Weekly net sales and shipments both were on the lower side than required to match the USDA’s export projection of 15.5 million bales.

U.S. has so far shipped 5.4% of cotton, while 54.4% is outstanding with total commitments for 2018-19 reached at 59.6%.

The U.S. weekly export sales figures were neutral to bearish for ICE cotton futures.

CFTC On Call Sales
Mill on-call commitments expanded modestly for the week ending Aug 31 to nearly 15 million bales (480lb) against all active contract months. Producer commitments against all contracts were up slightly Vs the previous period at approximately 4.5 million bales. Mill commitments against the Dec contract expanded slightly to 3.89 million bales. The unfixed mill position is supportive to ICE cotton futures.

CFTC COT Report
Trade shorts have reduced net positions for the fifth straight week ended Sept 4, by 2.4% at 14.82 million bales, just above from 14.69 million bales during the same period a year ago. Similarly, Index funds have also cut net long positions for a fifth consecutive week by 3.1% at 6.85 million bales. While, speculators after increasing net long positions last week have reduced their bets sharply by 7.4% at 1.76 million bales.

Looking at the overall CFTC COT report it seems trade shorts have reduced lesser net positions in percentage terms, which means that market participants are more optimistic about bearish tone to continue ahead.

Conclusion
It is still very difficult to predict anything about price behavior due to mixed bags of news for cotton market and thus cotton prices next week may continue to trade sideways. However next week on Sept 10 USDA’s World Supply-Demand report will out, but there is less possibility of any major adjustments in supply-demand of global producers, exporters and importers.

(By Commoditiescontrol Bureau; +91-22-40015533)